On Your Mark… Get Set… Wait! Are We a Small Business?
Going after federal contracts? In addition to the other necessary preparations, make sure you know how “small” you are first and why.
The markets are sluggish and consumer and business spending is waning. What can you do to diversify your markets to achieve some relief? As the leader of your company, your next decision could very well determine how you, your partners and employees pay for clothes, education and put food on the table.
You decide to offer your products and services to government agencies, a popular fallback for many businesses. It is not a quick fix, but in tough economic times like these, more and more companies are attracted to the perceived safety of government contracting. However, in addition to a plethora of acronyms and a unique and sophisticated set of rules for how business is done, you will also learn that a small business in the commercial sector may not be so small here. Deciphering what a small business is for government contracting can be confusing at best. In some instances, companies considered “small” in one discipline, may not qualify as a small business for others. How do you figure out where you stand?
The first thing you should do is a market assessment to understand how other companies like yours are doing business and how government agencies currently utilize offerings like yours. Do not limit it to just small companies; it is important to understand how your larger competition fares as well. Get a glimpse of what the market conditions are, who the potential competition is, and more importantly, who your prospective customers are and how you will reach out to them. This will play a tremendous role in how you make decisions. Once you have a better idea of where you will focus your efforts, you will need to posture your company as one that is “ready” to do business with government agencies and their contractors. This is where the Central Contractor Registration database (CCR) comes in.
The current process for registering as a company ready to do business with the federal government does not have an associated cost (not taking into account local and state fees to establish your entity as a business) and neither does doing so as a small business. The process of creating your registration in the CCR will require you to become familiar with NAICS Codes, formerly known as SIC Codes.
The North American Industrial Classification System, recognized by the U.S., Canada and Mexico, is a collection of six-digit codes used to identify companies by their respective industries. Within the government sector, it serves a unique and specific purpose. The codes and accompanying size standards, developed by the Small Business Administration, indicate the products and services offered by a company and, based on the type of acquisition, which companies are small businesses for direct contracting and subcontracting on government agency requirements. Each NAICS Code describes the “primary industry” of companies presenting specific codes, and the SBA Size Standards determine who is a small business for that industry by calculating the average company revenues for the current year and previous two years or the average number of employees for the same period. The Code of Federal Regulations (CFR) specifies what an employee is; what revenues are to be included in the determination and other criteria such as ownership and control and how the U.S. Small Business Administration determines the “primary industry” of a company, one of the tests used to determine small business status. For example, a company involved in software publishing is considered a small business if their average revenues fall below $25M, whereas a company operating a marina is considered a small business if they have average revenues under $7M. Businesses manufacturing power hand tools are considered a small business if they have an average of 500 employees or less and those manufacturing small arms can have as many as 1,000 employees and be considered small. Two very important points to keep in mind are that only companies organized for-profit are considered small businesses in government contracting and franchises are often not considered small businesses due to affiliation, ownership and control.
Try not to buy in to all of “shiny rocks” associated with government contracting and the small business community, as there are many organizations outside the government offering to provide small business certification for a fee (of course!). They will do their best to convince you their certification is vital for gaining credibility in the government sector when in fact there are only two socioeconomic designations requiring certification, the 8(a) Business Development Program and the HUBZone Program, both managed and issued by the government.
At this point, it is now up to you to work your plan and take advantage of the unique qualities you and your company bring to the government sector. Remember, people do business with those they know, like and trust, especially in this community.
About the Author Guy Timberlake is co-founder and Chief Visionary Officer of The American Small Business Coalition.
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